Huron investors OK more incentive stock

Huron Consulting Group Inc. shareholders last week approved a plan to devote more shares to the consultancy's employee stock incentive plan, despite concerns raised recently by a corporate governance watchdog.

Institutional Shareholder Services Inc. (ISS) of Maryland recommended last month that investors vote against a proposal to issue 2.1 million new shares to add to Chicago-based Huron's employee incentive plan.

The proposal won approval at Huron's annual shareholders meeting May 2 in Chicago. Huron now has a total of 2.7 million shares to award to employees and executives and a total of 17.3 million shares outstanding.

"When you are using currency in terms of stock, you are diluting shareholders' equity position," says Patrick McGurn, ISS executive vice-president and special counsel. "It's diluting earnings, not just voting power."

ISS argues that the additional shares now earmarked for employee compensation push the percentage of shareholder market value transferred to employees far above the level it deems appropriate. The transferred value should be no higher than 16.09%, but Huron's is now at 25.84%, according to ISS. The advisory firm considered company performance and peer companies' practices to arrive at its recommendation for Huron.

Huron's net income last year rose 79% to $17.8 million. Revenue, meanwhile, climbed 30% to $207.2 million. For 2006, Huron projects sales between $263 million and $268 million and earnings of $1.33 to $1.40 a share. Year-to-date, the company's stock is up almost 45% to $34.72.

Huron disagrees with ISS' analysis. The firm argues that the total percentage of shareholder value transferred to employees is 12.46%. Huron says ISS arrived at a higher percentage because it "double counts" restricted shares.

Additionally, Chairman and CEO Gary Holdren, in an April 26 letter to shareholders, said ISS compares Huron's practices to a "broad industry benchmark that includes non-professional services and that includes primarily companies that do not use equity as a key management tool."

Shekhar Purohit, an executive compensation consultant at Delves Group in Chicago, says Huron's percentage of shareholder value transferred to employees is high because the firm held its initial public offering less than two years ago.

"The percentage is high, but over time, as stock options become exercisable, that number is going to go down," he says.